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"Summary of Benefits and Coverage Requirements under PPACA"

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8.07.12

Introduction

A group health plan (GHP) and a health insurance issuer (Issuer) offering group or individual insurance coverage must provide an accurate summary of benefits and coverage (SBC) to plan participants and insureds. The SBC must use a uniform format to enable individuals to more easily compare different health insurance products and better understand the terms of their coverage or exceptions thereto.

This article will examine the key provisions impacting employer-sponsored group health plans.1

Clarifications Under the Final Regulations

Under the final regulations, GHPs and Issuers are required to begin delivering these SBCs to participants and beneficiaries who enroll or re-enroll in group health coverage through an open enrollment period (including re-enrollees and late enrollees) beginning on the first day of the first open enrollment period that begins on or after September 23, 2012. For participants and beneficiaries who enroll other than through the open enrollment period, the SBC requirements apply beginning on the first plan year that begins on or after September 23, 2012. However, Issuers are required to start complying with the SBC disclosures to plans effective September 23, 2012.

The final regulations make the plan administrator of a GHP responsible for providing an SBC to participants and beneficiaries. Because most fully insured GHPs will rely on Issuers to develop and update the SBC on behalf of the GHP and because the SBC for fully insured plans can be distributed by either the Issuer or the GHP, the SBC is not the plan administrator’s sole responsibility. Additionally, most self-insured GHPs that have third-party administrators will rely on them to provide and maintain the SBC on behalf of the self-insured GHP.

Plan administrators should be actively working with its Issuer(s) and/or third-party administrators at this time to coordinate the development and timely dissemination of the SBC.

The final regulations also clarify that an SBC for health flexible spending accounts (FSA) and health reimbursement  arrangements (HRA) must be provided, unless such FSA or HRA qualify as excepted health benefits.2 When benefits under a FSA or HRA are integrated with other major medical coverage, the SBC that is prepared for the other major medical coverage can include information on the FSA and HRA and a separate SBC for these types of arrangements is not required. If the FSA or HRA is a stand-alone arrangement, it must separately meet the SBC requirements. Health savings accounts (HSA) are not subject to the SBC requirements. However, an HSA can be mentioned in the SBC for a high deductible health plan associated with an HSA.

Who Provides the SBC and When?

1. From Issuer to GHP (Automatic)

An Issuer offering group health insurance coverage is required to provide the SBC to the fully-insured GHP (including the plan sponsor) upon an application or request for information by the GHP about the health coverage as soon as practicable, but in no event later than seven (7) business days following the request. If an SBC is provided upon request for information and the GHP subsequently applies for coverage, a second SBC must be provided only if the information required to be in the SBC has changed. Additionally, if there is any change in the required information in the SBC before the coverage is offered or before the first day of coverage, the Issuer must update and provide a current SBC to the GHP (and the plan sponsor) no later than the date of the offer (or no later than the first day of coverage, as applicable).  Another SBC must be provided when the policy, certificate, or contract is renewed or reissued, no later than the date the materials are distributed (or, if renewal or reissuance is automatic, the SBC must be provided no later than 30 days prior to the first day of the new policy year).  However, if the coverage terms of the fully-insured plan has not been finalized, the 30-day requirement is relaxed to as soon as practicable, but in no event later than seven (7) business days following the issuance of the policy, certificate or contract for insurance or the receipt of written confirmation of intent to renew, whichever is earlier. This exception is only available where the terms of the fully insured coverage are finalized in fewer than 30 days in advance of the new policy year.

2. From GHP/Issuer to Participant/Beneficiary (Automatic)

The GHP (including the plan administrator) and Issuer offering group health insurance coverage must provide an SBC to a participant or beneficiary with respect to each benefit package offered for which the participant or beneficiary is eligible. The SBC must be first distributed at enrollment as part of any written materials that are distributed by the GHP in connection with enrollment in coverage for the participant or any beneficiary (and if no written materials are distributed for enrollment, the SBC must be distributed no later than the first date the participant is eligible to enroll). If there is any change to the information required to be in the SBC before the first day of coverage, the GHP or Issuer must update and provide a current SBC to a participant or beneficiary no later than the first day of coverage. The final regulations lengthened the period of time  that the GHP or Issuer must provide the SBC to HIPAA special enrollees from seven (7) days of a request for special enrollment to 90 days from enrollment. When coverage is renewed, the SBC must be provided no later than the date the written application materials are distributed (and if renewal is automatic, the SBC must be provided no later than 30 days prior to the first day of coverage in the new plan year). For fully insured plans only, the final regulations include an exception from the 30-day requirement to provide the SBC because, for example, the coverage terms have not been finalized. In such situations, the SBC must be provided as soon as practicable, but in no event later than seven (7) business days following the issuance of the policy, certificate or contract for insurance or the receipt of written confirmation of intent to renew, whichever is earlier. This exception is only available where the terms of the fully insured coverage are finalized in fewer than 30 days in advance of the new policy year.

3. Upon Request  

The GHP or Issuer must provide the SBC to a participant or beneficiary and an Issuer must provide the SBC to the GHP (or its sponsor), as soon as practicable, but in no event later than seven (7) business days following receipt of the request.

4. Additional Provisions to Streamline SBC Distribution Requirements

To prevent redundancy in distributing the SBC, the final regulations adopt the following three rules:

  • The requirement to provide the SBC will be considered satisfied by all entities if the SBC is provided by any entity, so long as all timing and content requirements are satisfied. For example, if the Issuer offering group health coverage provides a complete, timely SBC to the GHP’s participants and beneficiaries, the GHP’s obligation to provide the SBC will be satisfied.
  • If a participant and any beneficiaries are known to reside at the same address, providing a single SBC to that address will satisfy the obligation to provide the SBC for all individuals residing at that address. If a beneficiary’s last known address is different from the participant’s last known address, a separate SBC must be provided to the beneficiary at the beneficiary’s last known address.
  • If a GHP offers multiple benefit packages, the GHP or Issuer can decide to automatically provide only the SBC relating to the benefit package in which the participant or beneficiary is enrolled in connection with a renewal of coverage. If a participant or beneficiary requests an SBC with respect to another benefit package for which the participant or beneficiary is eligible, the SBC must be provided as soon as practicable, but in no event later than seven (7) business days following the request.

How Is the SBC to Be Provided?

1. Appearance

PHS Act Section 2715 requires that the SBC be presented in a uniform format, utilizing terminology understandable by the average plan enrollee, that does not exceed four (4) pages in length, and does not include print smaller than 12-point font. The four-page requirement means four double-sided pages. The final regulations permit the SBC to be provided as either a stand-alone document or in combination with other summary materials—e.g. Summary Plan Description—if the SBC information is intact and prominently displayed at the beginning of the materials (such as immediately after the table of contents in the Summary Plan Description). The SBC must be provided in the form authorized by the Department of Health and Human Services (HHS), Department of Labor (DOL), and Internal Revenue Service (IRS) (collectively referred to as the “oversight agencies”) and completed in accordance with the instructions and guidance for completing the SBC that are authorized by such agencies. To the extent that a GHP’s terms that are required to be described in the SBC template cannot be reasonably described in a manner consistent with the template and instructions for the SBC, the GHP or Issuer must use its best efforts to accurately describe the relevant plan terms in a manner that is as consistent as possible with the SBC instructions and SBC template format.

2. Content

The SBC must include the following:3

  • Uniform definitions of standard insurance terms and medical terms so that applicants, policyholders, and enrollees can compare health insurance coverage and understand the terms of coverage (or exceptions to such coverage);
  • Description of the coverage, including cost sharing for each category of benefits that are identified by the oversight agencies;
  • Exceptions, reductions, and limitations of the coverage;
  • Cost-sharing provisions, including deductible, co-insurance, and co-payment obligations;
  • Renewability and continuation of coverage provisions;
  • Coverage examples illustrating benefits provided under the plan or coverage for common benefits scenarios (including pregnancy and serious or chronic medical conditions);4
  • With respect to coverage beginning on or after January 1, 2014, a statement about whether the plan or coverage provides minimum essential coverage (as defined under Section 5000A(f) of the Internal Revenue Code) and whether the plan’s or coverage’s share of the total allowed cost of benefits provided under the plan or coverage meets applicable requirements;
  • A statement that the SBC is only a summary and that the plan, policy, or certificate of insurance itself should be consulted to determine the governing contractual provisions of the coverage;
  • Contact information for questions and obtaining a copy of the plan document or the insurance policy, certificate, or contract of insurance (such as a telephone number for customer service and an Internet address for obtaining a copy of the plan document or the insurance policy, certificate, or contract of insurance);
  • For plans and Issuers that maintain one or more networks of providers, an Internet address (or similar contact information) for obtaining a list of network providers;
  • For plans and Issuers that use a formulary in providing prescription drug coverage, an Internet address (or similar contact information) for obtaining information on prescription drug coverage; and
  • An Internet address for obtaining the uniform glossary, as well as a contact phone number to obtain a paper copy of the uniform glossary, and a disclosure that paper copies are available.

The final regulations provide that, in lieu of summarizing coverage for items and services provided outside the United States, a plan or issuer may provide an internet address (or similar contact information) for obtaining information about benefits and coverage provided outside the United States. To satisfy the SBC content and appearance requirements of PHS Act 2715, the oversight agencies published an updated SBC template and instructions that can be found at www.dol.gov/ebsa/healthreform and http://cciio.cms.gov/.

3. Form and Manner

For GHPs and Issuers subject to ERISA or the Code, the SBC may be provided to participants or beneficiaries who are already covered under the GHP in paper form or, alternatively, in electronic form (such as by email or Internet posting) but only if the requirements of the DOL’s electronic disclosure safe harbor at 29 CFR Section 2520.104b-1(c) are met. For nonfederal governmental plans, the regulations provide that the SBC may be provided electronically if either the substance of the provisions in the DOL’s electronic disclosure rule are met or if the provisions governing electronic disclosure in the individual health insurance market are met.5 With respect to participants and beneficiaries who are eligible but not enrolled for coverage, the SBC may be provided electronically if: (1) the form is readily accessible; (2) the SBC is provided in paper form free of charge upon request; and (3) in a case in which the electronic form is an Internet posting, the GHP or Issuer timely notifies the individual in paper form (such as a postcard) or email that the documents are available on the Internet, provides the Internet address, and notifies the individual that the documents are available in paper form upon request.

With respect to an SBC provided by an Issuer to a GHP, the SBC may be provided in paper form. Alternatively, the Issuer may provide the SBC to the GHP electronically (such as by email or an Internet posting) if the following conditions are met: (1) the format must be readily accessible by GHPs (or its sponsor); (2) the SBC must be provided free of charge in paper form upon request; and, (3) if the electronic form is an Internet posting, the plan must be notified by paper or email that the documents are available on the Internet and given the web address.

4. Language

PHS Act Section 2715(b)(2) requires that the SBC be presented in a culturally and linguistically appropriate manner. Consistent with the proposed regulations, the final regulations provide that the GHP or Issuer follow the rules for providing appeals notices in a culturally and linguistically appropriate manner under PHS Act 2719, and paragraph (e) of its implementing regulations.  Under these requirements, GHPs and Issuers must provide notices in a culturally and linguistically appropriate manner when 10 percent or more of the population residing in the claimant’s county are literate only in the same non-English language (based on U.S. Census data). According to the guidance issued by the oversight agencies, the predominant non-English languages in the counties identified under these requirements are: Spanish, Chinese, Tagalog, and Navajo. The HHS and DOL websites contain written translations of the SBC template, sample language and Uniform Glossary in these languages to assist GHPs and Issuers meet this requirement.

Modifications to the SBC

If a GHP or Issuer makes a material modification (as defined under Section 102 of ERISA) to any of the terms of the plan or coverage that (i) is not reflected in the most recently provided SBC, (ii) would affect the content of the SBC, and (iii) occurs other than in connection with a renewal or reissuance of coverage, a notice of material modification (or an updated SBC) must be provided to enrollees no later than 60 days prior to the date on which such change will become effective.

Uniform Glossary

The oversight agencies have developed a uniform glossary for the SBC to ensure that definitions for a list of medical and health-coverage-related terms would be understandable to the average plan enrollee.6

A GHP or Issuer must make the uniform glossary available upon request within seven (7) business days of the request in either paper or electronic form.   

Preemption

PHS Act Section 2715 is incorporated into ERISA and the Code, and is subject to the preemption provisions of ERISA and the PHS Act. Thus, State laws that require an Issuer to provide an SBC that supplies less information than required under PHS Act Section 2715 are preempted. The final regulations confirm that the preemption provisions would not prevent States from imposing additional disclosure requirements or other requirements that are stricter on Issuers than those provided by the Affordable Care Act (noting that self-funded plans are not subject to State insurance laws so this would only impact fully insured plans).

Penalties for Failing to Provide SBC

PHS Act Section 2715(f) provides that a GHP (including the plan administrator) or an Issuer that “willfully fails to provide the information required under this section shall be subject to a fine of not more than $1,000 for each such failure.” In addition, a separate fine may be imposed for each individual or entity for whom there is a failure to provide an SBC. Due to the different enforcement jurisdictions and enforcement structures of each Agency, imposition of this new penalty may vary and is discussed in more detail in the preambles to the final regulations.

Please contact Gabe Marinaro at 313-568-6874, Amy Christen at 248-203-0760, authors of this alert, or your Dykema relationship attorney if you have questions regarding the SBC final regulations, the SBC template (and its instructions), or other general questions about the Affordable Care Act.

For more information about Dykema’s Employee Benefits practice, please visit http://www.dykema.com/services-practices-employee-benefits.html. 

1Final regulations, effective April 16, 2012, were published regarding the standards and requirements for the new summary of benefits and coverage (SBC) under Public Health Service Act (PHS Act) Section 2715, as added by the Affordable Care Act. The final regulations, SBC template, Uniform Glossary, and other information on the Affordable Care Act can be found at www.dol.gov/ebsa/healthreform and http://cciio.cms.gov/. The SBC template, Uniform Glossary, instructions on completing the SBC will be updated periodically so it is important to visit the websites for any updates. 

The SBC final regulations also set forth provisions specifically dealing with the individual health insurance market.  Please contact us or visit the DOL or CMS websites for more information regarding individual market SBC rules.

226 CFR 54.9831-1(c), 29 CFR 2590.732(c), and 45 CFR 146.145(c).

3Notably, the final regulations removed the requirement that an SBC contain premium or cost of coverage information.

4The oversight agencies may identify up to six coverage examples that may be required in an SBC. Currently, such agencies have developed guidance for two coverage examples—having a baby (normal delivery) and managing type 2 diabetes (routine maintenance of a well-controlled condition). A “benefits scenario” is a hypothetical situation, consisting of a sample treatment plan for a specified medical condition during a specified period of time, based on recognized clinical practice guidelines.  To illustrate the benefits provided under a benefits scenario, a plan or issuer simulates claims processing in accordance with guidance issued by the oversight agencies to generate an estimate of what the individual might expect to pay under the plan, policy, or benefit package. 

5An Issuer of individual health insurance may provide an SBC in electronic form if the issuer: (1) hand delivers a printed copy of the SBC to the individual or dependent; (2) mails a printed copy of the SBC to the mailing address provided to the issuer by the individual or dependent; (3) provides the SBC by email after obtaining the individual’s or dependents’ agreement to receive the SBC or other electronic disclosure by email; (4) posts the SBC on the Internet and advises the individual or dependent in paper or electronic form, in a manner compliant with (1)-(3) above, that the SBC is available on the Internet and includes the applicable Internet address; or (5) provides the SBC by any other method that can reasonably be expected to provide actual notice. An issuer that provides the SBC electronically must: (1) make the SBC available in an electronic form that is readily accessible; (2) display the SBC in a location that is prominent and readily accessible; (3) provided in an electronic form that is consistent with the appearance, content, and language requirements; (4) provided in an electronic form which can be electronically retained and printed; (5) issuer notifies the individual or beneficiary that the SBC is available in paper form without charge upon request and provides it upon request.

6The final regulations slightly revised the list of uniform definitions (specified in guidance issued by the oversight agencies) for the following health-coverage-related terms and medical terms: allowed amount, appeal, balance billing, co-insurance, complications of pregnancy, co-payment, deductible, durable medical equipment, emergency medical condition, emergency medical transportation, emergency room care, emergency services, excluded services, grievance, habilitation services, health insurance, home health care, hospice services, hospitalization, hospital outpatient care, in-network co-insurance, in-network co-payment, medically necessary, network, non-preferred provider, out-of-network coinsurance, out-of-network co-payment, out-of-pocket limit, physician services, plan, preauthorization, preferred provider, premium, prescription drug coverage, prescription drugs, primary care physician, primary care provider, provider, reconstructive surgery, rehabilitation services, skilled nursing care, specialist, usual customary and reasonable (UCR), urgent care, and such other terms the oversight agencies determine are important to identify.

As part of our service to you, we regularly compile short reports on new and interesting developments in our business services program. Please recognize that these reports do not constitute legal advice and that we do not attempt to cover all such developments. Rules of certain state supreme courts may consider this advertising and require us to advise you of such designation. Your comments on this newsletter, or any Dykema publication, are always welcome. © 2012 Dykema Gossett PLLC.

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